Is The IEA Advising Investors to Dump Fossil Fuel Stocks?

An eyebrow-raising report in The Irish Times today raised the possibility that one of the world’s foremost energy policy bodies may be suggesting that investors dump fossil fuel stocks. From The Irish Times:

About two-thirds of all proven reserves of oil, gas and coal will have to be left undeveloped if the world is to achieve the goal of limiting global warming at two degrees Celsius, according to the chief economist at the International Energy Agency.

Addressing participants in the latest round of UN climate talks in Bonn, Fatih Birol said this should be an “eye-opener” for pension funds with significant investments in the energy sector – particularly in coal – as well as for ratings agencies.

He predicted coal would be hardest hit in the “unburnable carbon” scenario, followed by oil and gas. “We cannot afford to burn all the fossil fuels we have. If we did that, it [average global surface temperature] would go higher than four degrees.

Fatih Birol is echoing concerns coming from the vast body of climate science that if all the fossil fuels are burned, Earth may well be rendered uninhabitable for human beings. And since less than 1/3 of current fossil fuel stocks can be used and still maintain an economically viable human civilization, that makes 2/3 of those stocks practically unusable. As such, oil, gas, and coal stocks are likely at least over-valued by 2/3 and serious write-down in company stock prices will be inevitable at some point in the near future.

Environmental organizations have seized on this overvaluation and begun to urge investors to transition away from fossil fuel stocks and begin supporting companies that invest in alternative energy. To wit, 350.org has spear-headed such efforts with a broad-based campaign targeting universities, municipalities and even state governments. This divestment campaign has already met with major successes with hundreds of efforts emerging across the US. You can learn more about these efforts here.

For such efforts to reach the international stage would be a major milestone. Fatih Birol’s statements and efforts are, therefore, worth wholehearted support. Preservation of a climate amenable to human civilization should be held as paramount. And current IEA statements appear pursuant to that goal.